Size, Sunk Costs, and Judge Bowker's Objection to Free Trade

John McLaren

American Economic Review, 1997, vol. 87, issue 3, 400-420

Abstract: In trade liberalization between a large country and a small one, if production requires irreversible investments, anticipated negotiations may make the small country strictly worse off than a fully anticipated trade war, and indeed worse off than autarchy. The reason is that investors, anticipating liberal trade, will invest in the export sector, making the small country dependent on trade with the large one and thus ruining its bargaining power. This effect is dominated by conventional effects, so that anticipated bargaining benefits the small country on balance, if there is sufficient: dissimilarity between the economies and between goods. Copyright 1997 by American Economic Association.

Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (84)

Downloads: (external link)
http://links.jstor.org/sici?sici=0002-8282%2819970 ... O%3B2-L&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:87:y:1997:i:3:p:400-420

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().